59877e35-c17a-4abf-b438-d8db60d6c1dd.pdf


30 November 2015


AVANGARDCO INVESTMENTS PUBLIC LIMITED FINANCIAL RESULTS FOR Q3 AND 9M 2015 Кyiv, Ukraine - AVANGARDCO INVESTMENTS PUBLIC LIMITED (LSE: AVGR) (the 'Company' or

'AVANGARDCO IPL'), the largest producer of shell eggs and egg products in Ukraine and number one producer in Europe, announces its financial results for the third quarter and nine months ended 30 September 2015.


Financial Highlights for Q3 2015


  • Consolidated revenue of US$55.1mln, a decrease of 43% YoY (Q3 2014: US$97.0 mln).

  • Gross profit of US$5.4 mln, a decline of 77% YoY (Q3 2014: US$23.7 mln).

  • EBITDA increased by 83% YoY to US$13.2 mln (Q3 2014: US$7.2 mln).

  • Net profit of US$1.1 mln (Q3 2014: net loss of US$47.6 mln).


    Financial Highlights for 9M 2015:


  • Consolidated revenue amounted to US$176.5 mln, a decrease of 50% YoY (9M 2014: US$354.7 mln).

  • Export sales revenue amounted to US$71.2 mln or 40% of the Company's consolidated revenue (9M 2014: US$134.8 mln or 38% of the consolidated revenue).

  • Gross profit of US$12.9 mln, a decline of 87% YoY (9M 2014: US$102.1 mln).

  • Operating loss amounted to US$102.1 mln (9M 2014: operating profit of US$67.6 mln).

  • EBITDA loss of US$84.3 mln (9M 2014: EBITDA US$108.6 mln).

  • Net loss amounted to US$150.5 mln (9M 2014: net loss of US$5.7 mln).


    Operational Highlights for 9M 2015:


  • Production of shell eggs totalled 2,735 mln units, a decline of 47% YoY (9M 2014: 5,114 mln units).

  • Sales of shell eggs to external clients amounted to 2,308 mln units, down by 34% YoY (9M 2014: 3,499 mln units).

  • Export of shell eggs amounted to 326 mln units, a decline of 29% YoY (9M 2014: 462 mln units).

  • The average sales price of shell eggs was UAH 1.13 per unit, excluding VAT, up by 59% YoY (9M 2014: UAH 0.71 per unit, excluding VAT).

  • The production of dry egg products amounted to 6,567 tonnes, a decline of 63% YoY (9M 2014: 17,739 tonnes).

  • Sales of dry egg products totalled 8,695 tonnes, down by 45% YoY (9M 2014: 15,882 tonnes).

  • Export of dry egg products amounted to 6,575 tonnes, a decline of 50% YoY (9M 2014: 13,046 tonnes)

  • As at 30 September 2015, the total poultry flock amounted to 19.0 mln hens, a decrease of 27% YoY (30 September 2014: 25.9 mln).

  • As at 30 September 2015, the number of laying hens amounted to 13.7 mln, down by 26% YoY (30 September 2014: 18.5 mln).


    Post Period Highlight:


  • On 28 October 2015, AVANGARDCO IPL completed a successful restructuring deal and extended the maturity of the Eurobonds from 29 October 2015 to 29 October 2018.


    Irina Marchenko, Chief Executive Officer of AVANGARDCO IPL, commented:


    'In Q3 and 9M 2015, we have made a number of important steps towards our strategic goals, for example, we have started to gradually increase our poultry flock at the farms outside the affected regions, with a target to grow production of shell eggs and dry egg products for export and sales through supermarket chains in the nearest future. We continued to develop exports to the EU in line with of our strategy of export expansion, where we have

    more than doubled exports of dry egg products in Q3 compared to Q2 2015. To date, we are exporting egg products to Denmark, the United Kingdom, Latvia and Italy. The increase in the share of sales to the EU will enable us to diversify exports and mitigate the impact following volatility in the Middle East. Our entry into Israel in September 2015 - including some profitable long term shell egg contracts - along with export permission rights and delivery to Qatar for the first time in October 2015 were also key milestones which position the Company well for future growth.


    In addition, the most important recent development for us was the successful restructuring of our Eurobonds, which became possible with the support of our bondholders. We hope that this will help to improve current liquidity and release funds to finance operations and recapture the Company's market position. I would like to thank our bondholders for their support.'


    ###


    The management will host a conference call and webcast for investors and analysts on Monday, 30 November 2015 at 09.00 am US Eastern time, 14.00 pm UK time, 16.00 pm Kiev time and 17.00 pm Moscow time.


    Name:

    AVANGARDCO Q3 2015 FINANCIAL RESULTS

    ID:

    ID 88644796

    UK Free call

    0800 073 1340

    Russia Free call

    88007756818

    USA

    1866 434 1089

    UK Standard International

    +44 (0) 1452 569 393


    A live webcast of the presentation will be available at: https://webconnect.webex.com/webconnect/onstage/g.php?MTID=e020df2b3b54ad3f50ccc18d42e296da1


    Please register approximately 15 minutes prior to the start of the call.


    Financial results for the nine months ended 30 September 2015 are available on the Company's website at: http://avangard.co.ua/eng/for-investors/financial-overview/financial-reports/interim-reports/



    Financial results overview

    ###


    Units

    Q3 2015*

    Q3 2014*

    Change, %

    9M 2015

    9M 2014

    Change, %

    Consolidated Revenue

    US$ '000

    55,152

    97,023

    (43%)

    176,477

    354,693

    (50%)

    Gross Profit/(Loss)

    US$ '000

    5,391

    23,676

    (77%)

    12,920

    102,085

    (87%)

    Gross Profit Margin

    %

    10%

    24%

    -

    7%

    29%

    -

    EBITDA

    US$ '000

    13,191

    7,198

    83%

    (84,303)

    108,628

    -

    EBITDA Margin

    %

    24%

    7%

    -

    -

    31%

    -

    Operating Profit/(Loss)

    US$ '000

    7,674

    (19,845)

    -

    (102,069)

    67,638

    -

    Operating Margin

    %

    14%

    -

    -

    -

    19%

    -


    Net Profit/(Loss)


    US$ '000


    1,080


    (47,577)


    -


    (150,486)


    (5,747)


    -

    Net Profit Margin

    %

    2%

    -

    -

    -

    -

    -

    *recalculated at the average UAH/USD exchange rate for the third quarter of 2014 and 2015 The exchange rates used for the preparation of consolidated financial statements: Q3 2015:

    Currency

    30 September

    2015

    Weighted average for Q3 2015

    30 September

    2014

    Weighted average for Q3 2014

    US dollar to Ukrainian Hryvnia

    21.528

    21.722

    12.949

    12.577



    In Q3 2015, the Company's consolidated revenue decreased by 43% YoY to US$55.1 mln (Q3 2014: US$97.0 mln) as a result of lower sales of shell eggs and dry egg products alongside the decreased average sales price in dollar terms for both products.


    In Q3 2015, gross profit declined by 77% YoY and amounted to US$5.4 mln (Q3 2014: US$23.7 mln) due to reduced revenue and increased cost per unit of output. Gross profit margin was 10%.


    In Q3 2015, EBITDA increased by 83% YoY to US$13.2 mln (Q3 2014: US$7.2 mln which included a one-off impairment charge following the closure of the production operations in Crimea and Eastern Ukraine).


    In Q3 2015, the Company reported net profit of US$1.1 mln (Q3 2014: net loss of US$47.6 mln) driven by increased operating income and lower FX losses.


    9M 2015:



    Currency

    30 September

    2015

    Weighted average for the 9 months ended 30 September 2015

    30 September

    2014

    Weighted average for the 9 months ended 30 September 2014

    US dollar to Ukrainian Hryvnia

    21.528

    21.485

    12.949

    11.059


    In 9M 2015, the Company's consolidated revenue decreased by 50% YoY to US$176.5 mln (9M 2014: US$354.7 mln). This was attributed to two main factors: lower sales of shell eggs and dry egg products which were down by 34% and 45% respectively and the devaluation of the Ukrainian hryvnia against the US dollar.


    In 9M 2015, the Company's export revenues decreased by 47% YoY to US$71.2 mln (9M 2014: US$134.8 mln) as a result of lower export sales of shell eggs and dry egg products. Despite this, the share of exports in the consolidated revenue grew to 40% (9M 2014: 38%).


    In the reporting period, the cost of sales in dollar terms fell by 36% YoY to US$166.1 mln (9M 2014: US$261.1 mln) due to the devaluation of the Ukrainian Hryvnia against the US dollar. The cost of sales in Hryvnia terms increased as the price of over 70% of the components (grain, veterinary medicines, and packaging materials) is linked to other major currencies. The cost of services provided by third parties (utilities, warehouse lease, veterinary services, and transport costs) increased due to the devaluation of the Ukrainian Hryvnia against the US dollar and the tariff revision.


    As a result of the decrease in the consolidated revenue and increase in the cost of sales per unit, the Company's gross profit was down by 87% to US$12.9 mln (9M 2014: US $102.1 mln). Gross profit margin decreased to 7% (9M 2014: 29%).


    In 9M 2015, the loss from operating activities amounted to US$102.1 mln (9M 2014: operating profit of $67.6 mln). This loss is largely attributed to a write down in H1 2015 of sub-standard raw material inventories and inventories of finished goods with expired shelf life, provisions for doubtful debts and funds deposited with the Financial Initiative bank due to its insolvency.


    This led to EBITDA loss of US$84.3 mln (9M 2014: EBITDA US$108.6 mln).


    In 9M 2015, the Company reported a net loss of US$150.5 mln (9M 2014: net loss of US$5.7 mln) which includes FX losses of US$33.5 mln.

    Cash flow and debt structure:


    As at 30 September 2015, net cash flow from operating activities decreased to US$6.8 mln (30 September 2014: US$41.2 mln) due to the reduced operating profit and increased inventories.


    Net cash used in investing activities amounted to US$30.4 mln for maintenance capex (30 September 2014: US$54.9 mln).


    Net cash used in financing activities was US$6.9 mln (30 September 2014: net cash received from financing activities US$21.3 mln).


    As at 30 September 2015, net cash outflow amounted to US$30.5 mln (30 September 2014: net cash inflow US$7.6mln). Cash and cash equivalents decreased to US$42.3 mln (30 September 2014: US$157.6 mln) as cash outflow from financing and investing activities exceeded the funds inflow from operating activities. The written off funds deposited with the Financial Initiative bank also had an impact.


    As at 30 September 2015, the Company's total debt amounted to US$339.9 mln (31 December 2014: US$343.8 mln). Net debt amounted to US$297.6 mln (31 December 2014: US$225.9 mln).


    Restructuring of Eurobonds:


    On 28 October 2015 AVANGARDCO IPL completed the restructuring deal and extended the maturity of the Eurobonds from 29 October 2015 to 29 October 2018. In addition to other amendments, the following changes on the coupon payment have been agreed:


  • The 5% coupon will be payable on 29 October 2015 (representing the semi-annual payment of the existing 10% coupon), with 2% to be paid in cash as a regular coupon payment and 3% to be paid as payment in kind ('PIK').

  • The 10% coupon will be payable semi-annually in arrears on 29 April and 29 October of each year, commencing 29 April 2016, but subject to the following PIK and cash payment provisions:



Interest payment date

PIK Interest %

Cash Interest %

29.04.16

75

25

29.10.16

75

25

29.04.17

50

50

29.10.17

50

50

29.04.18

25

75

29.10.18

0

100


The full information on the restructuring deal is available at: http://avangard.co.ua/eng/


Segment review Shell Eggs Segment


Units

As at 30.09.2015

As at 30.09.2014

Change

Total Poultry Flock

Heads (mln)

19.0

25.9

(27%)

Laying Hens

Heads (mln)

13.7

18.5

(26%)


As at 30 September 2015, the total poultry flock was down by 27% YoY to 19.0 million heads (30 September 2014: 25.9 million heads) and the number of laying hens decreased by 26% YoY to 13.7 million heads (30 September 2014: 18.5 million heads). The decrease in poultry flock size was due to the full suspension of laying farms in Eastern Ukraine close to the conflict zone1. This also coincided with lower domestic demand for shell


1 The 'Donetska' and 'Volnovahska' laying farms in the Donetsk region and the 'Bogoduhivska' laying farm in the Kharkiv region

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